Of cars, taxes and hole in the pocket

WIN-WIN SOLUTION- DRB-HICOM and Proton can kill two birds with one stone — sportscars for the rakyat at affordable prices

WE know that Lotus feeds on parent Proton's money as enthusiastically as one munches on popcorn in awe of "The Dark Knight Rises" or Emma Stone's web-slinging superhero boyfriend. It has hurt Proton for more than a decade.

And we have also known for a long time that car prices in Malaysia are among the world's highest. It's an anomaly that has deprived the average Malaysians from enjoying the fun and thrill (and comfort and reliability) behind the steering wheel of brand new Honda, Toyota, Volkswagen, Peugeot or other foreign cars.

What would you do, if you are the new owner of Lotus, to try stop the British sportscar maker from continuing to spew red ink?

Sell the company or stick to the expensive turnaround plan designed by the previous owner/management? Or come up with a new blueprint and, in the process, spend another RM1 billion or so for the loss-making outfit?

On the other hand, if you are the authority, how would you react when a young and (over?) zealous politician from the opposition make an implausible electoral pledge to slash our hefty excise and import duties on cars?

The populist may be tempted to announce the cuts desired by many so that the politician (who was charged under BAFIA recently for leaking secret banking documents) does not get further limelight and the public can buy vehicles affordably.

Then again, bringing taxes down is peanut and any government can do just that. But be prepared for the repercussions to the industry's ecosystem.

Revenue losses for the government and stakeholders such as dealers, vendors and banks are definite outcomes. It also leads to a grim possibility of increased congestion on our roads.

It is true that a cut in our car excise and import duties, which now run to up to 105 per cent on top of a 10 per cent sales tax, can put more money into people's pocket and lessen household debt, and ultimately stimulate the economy. But immediate, outright removal of the taxes is not a good move.

Like many, this writer advocates lower car prices (and was frustrated with the recent RM3,000 price increase for Hyundai Elantra 1.8).

I also agree that any tax review must put the interest of the wider public first, above that of companies or banks. However, cutting taxes drastically is not in the wider interest of the public as it will affect car resale value (although one can argue it's only a short-term pain), not forgetting the implications mentioned earlier.

About five years ago, there was a small reduction in car taxes. It shrank the sales of both new and used cars and took the market two years to correct itself.

Both the automotive companies and consumers were losers then. Many owners inevitably had to come up with extra cash to pay off loans in order to sell their old cars for new ones. So the tax debate continues.

Now back to Lotus.

Sceptics say Proton and Lotus are not made for each other. They argue that if big players such as General Motors (which bought Saab) and Ford (Volvo, Jaguar) had to dispose of the units after continuing pumping billions of dollar into them, what hope does a comparatively small company like Proton have to revive Lotus?

It's not impossible to turn around Lotus, although based on its past, present and future monetary needs, the easy way out for Proton and holding company DRB-HICOM Bhd would be to sell it outright.

DRB-HICOM has chosen to ditch previous Lotus management's five-year five-model plan. Instead, it will nurse the outfit back to health with its own medicines.

It's early days and, hence, we should give DRB-HICOM a chance and perhaps revisit the issue after two or three years.

Who knows, by then, maybe DRB-HICOM and Proton have built or at least remodelled an affordable Lotus cars for the rakyat.

--Business Times